All in agreement – the importance of shareholder and partnership agreements

August 24, 2017

What would happen to your business if one of the partners passed away or became critically ill?

What is stopping a shareholder from selling their shares to whoever they like?

These are all important questions that unfortunately business owners often don’t or won’t think about. None of the situations above is anything outside the realms of possibility and yet how many businesses have something in place?

A partnership agreement (for partnerships) or a shareholder agreement (for limited companies) will mean that your business has a legal document that can be referred back to should life throw up any issues. As the document was signed by all the parties in agreement, it provides a reference for what happens when in terms of shares or the running of the company. As it was agreed by everyone at the time it was created this means that the business suffers a minimum of disruption rather than being put on hold while shareholders fight over who is correct.

Did you know that without a shareholder’s agreement in place your company has no way of dealing with what happens to the shares of someone who loses capacity? There is also no policy regarding what happens to shares on the death of a shareholder (e.g. do they go to the family of the deceased or back to the company?). The company can only be guided by the articles of association, which are often a generic document that has to be registered with Companies House at the formation of the company.

While arguably as important as a will that covers your personal affairs, you can’t buy an agreement online or off a shelf in a packet. Both shareholder and partnership agreements are drafted by a barrister as a bespoke document to fit the needs of your company. This means that your agreement will cover exactly what you need it to in a way that you have specified.

Who can benefit from putting an agreement in place? Arguably any company where there is more than one shareholder or any partnership. Arranging an agreement doesn’t mean you don’t trust your partners, more that you are protecting each other and the business from anything life may throw at you.

For a free review of your business and a chat about how an agreement may help protect its future ensure you book a legacy planning review with me on 01530 416555 or email me felicity@theprofitkey.co.uk

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